What Is PMI (Private Mortgage Insurance) and How to Avoid It?

PMI (Private Mortgage Insurance) is an extra cost that protects the lender — not you — if you default on your loan. It can add $100 to $300+ to your monthly payment. Understanding what triggers it and how to get rid of it can save you thousands.

What Is PMI?

PMI is insurance that conventional mortgage lenders require when your down payment is less than 20% of the home's purchase price. Because you have less equity, the lender considers you a higher risk — and makes you pay for their protection.

PMI typically costs 0.5% to 1.5% of your original loan amount per year. On a $300,000 mortgage, that's $1,500 to $4,500 per year — or $125 to $375 per month — paid on top of your regular principal and interest.

How PMI Is Paid

• Monthly premium: added to your mortgage payment (most common)
• Single upfront premium: paid at closing, no monthly addition
• Split premium: combination of upfront and reduced monthly payment
• Lender-paid PMI: lender pays PMI in exchange for a higher interest rate

When Does PMI End?

Thanks to the Homeowners Protection Act (HPA), PMI must be automatically cancelled when your loan balance reaches 78% of the original purchase price. But you can request cancellation earlier once you reach 80% — you don't have to wait.

You can also reach 80% LTV faster through home appreciation. If your home value rises significantly, you can request a new appraisal and potentially cancel PMI years early.

How to Avoid PMI Altogether

• Put 20% down — the classic way to avoid PMI entirely
• Piggyback loan (80-10-10) — take a first mortgage for 80%, a second loan for 10%, and put 10% down
• VA loan — no PMI required for qualifying veterans and service members
• USDA loan — no PMI for rural/suburban eligible properties
• Lender-paid PMI — higher rate but no monthly PMI (good if you plan to sell within 5-7 years)

How to Get Rid of PMI If You Have It

1. 1Make extra principal payments to reach 80% LTV faster
2. 2Request cancellation in writing when you reach 80% LTV based on original price
3. 3Get a new appraisal if you believe your home has appreciated significantly
4. 4Refinance into a new loan without PMI (if rates are favorable)